story by Kim Souza
ksouza@thecitywire.com
Fresh is an important word at Wal-Mart Stores these days as the retail giant’s U.S. CEO Greg Foran believes the retailer can and will do a better job in this segment of the grocery space.
Foran recently said “fresh” is not all he’s focused on but it’s definitely being addressed. And there’s a good reason, as grocery comprises about 56% of annual sales and too many times Foran said he’s seen customers rush past the produce and head for the packaged foods.
He told analysts earlier this month that doing “fresh” right is a challenging part of any business because there are multiple things that must be right up and down the supply chain for products to appear fresh once in a consumer’s home. Specifically Foran said Wal-Mart is concentrating more upstream, closer to the fields where the fresh produce is sourced. Earlier this month Wal-Mart quietly opened a sorting and culling operation in Los Angeles to hasten the procurement process.
Insiders at Wal-Mart said the new center in California is similar to an operation in McAllen, Texas, that allows Wal-Mart more flexibility in buying product. For instance if product can be purchased green and stored there for ripening. Or, if there is product that certain stores want by customer request such as smaller than specified Roma tomatoes then Wal-Mart could buy the whole field. Then they would cull, sort and bag those non-spec items that their customers want. Before, the retailer said it would not have purchased non-spec items.
Aside from having more flexibility in the procurement process, Foran said the company is doing more consolidation of product in these centers and moving the product quicker through its distribution network. Produce is being sent through the regional distribution centers, not holding a slot, but merely passing through so that it can get out to the store quicker.
“It means that by the time the product gets to the store, it has been out of the field for less (time). If we then run less inventory in the store, the customer benefits because when they buy that product, they get it home and it lasts for five or six days,” Foran told analysts during the April 1 update.
“As I get around and I talk to customers, I will often hear customers say to me the product looked good yesterday, but the day after, I opened up the fridge and I can tell you that apple or that strawberry or that mango was not good enough to eat,” he said.
That prompted Wal-Mart to back themselves upstream and look at the procurement and transportation elements and expand the work in the Texas and new California produce operational centers. Looking further downstream, Foran said there has also been more focus on training, starting with 4,500 store managers undergoing the training at the retailer’s Year Beginning Meeting February.
“I can tell you that over the last 4 to 6 weeks, I'm seeing a little bit of momentum in this area. I am seeing improvements in what we are offering our customers, but we've got a lot more to do in this area yet,” Foran said.
Supply chain expert Annibal Sodero, a professor at the University of Arkansas, said the notion of upstreaming is not new, and Amazon and other retailers have long used the process. Wal-Mart also also previously used upstreaming in other applications such as holiday layaway or toys. He applauds the retailer’s recent broader application of upstreaming to fresh foods.
“Food retailers lose a lot money annually because of spoilage, particularly when the safety stocks (inventory) are aggregated near the customer. Storing product further up the supply chain can offer efficiencies because there would likely be less spoilage, providing you have the transportation network to get the product down the chain to consumers in a timely manner. Wal-Mart does have a huge infrastructure to leverage there,” Sodero said.
He said ideally, drop shipping direct to the consumer from the supplier is the fastest and most optimal method, a process used by online retailers like Amazon for its Fresh business.
“Today 30% of items bought online are delivered through drop shipping,” Sodero added.
He said that if you are Wal-Mart with thousands of suppliers coordinating that service with vendors would be very cumbersome. Sodero said Wal-Mart’s infrastructure, which is conducive for crates and pallets, shipped from supplier to distribution centers out to stores is a very different model.
He is not surprised to see Wal-Mart using more upstreaming and consolidation of loads to help squeeze costs out of the supply chain. He said the final mile is the most expensive leg of the supply chain and home delivery is the bar being set by Amazon, and now emerging delivery services like Uber.
Wal-Mart has said customers are happy with click and collect grocery model that is being tested in five markets across the U.S. Sodero adds that it’s to Wal-Mart’s advantage that consumers like and use that click and collect, versus home delivery.
“The click and collect model for grocery buying can utilize the infrastructure in place at Wal-Mart’s Supercenters and Neighborhood Markets. That is not the same as ordering your groceries with Amazon Fresh, having it bundled with Amazon Dash auto shipments and delivered free to your home if you can wait 2 hours. It’s $7.99 if you want it sooner,” Sodero said.
Just like Wal-Mart is testing its grocery pickup in five cites, Amazon is testing Prime Now for Fresh and Dash orders in Manhattan and coming to other cities in the future. Amazon does require annual membership fees for these expedited services. There is no added charges for the Wal-Mart’s grocery pickup option.
Sodero said if Wal-Mart wants to transform into an omni retailer with home delivery on par with Amazon it will take much more collaboration between retailer and suppliers.
“It’s not just about leaning on suppliers for their best price, it should be about working together to provide multichannel solutions that customers will want in the days ahead,” Sodero added.